Knowing your startup like the back of your...napkin.

When Chantel Waterbury came to pitch me back in August of 2010 for chloe + isabel, she started off the conversation with a simple description--that there were four other companies in her space each doing over a hundred million dollars of revenue and that, in total, they still made up a small percentage of the overall market.  She told me a few assumptions about how much each of her merchandizers would sell, and within a couple of minutes I was super psyched about the potential for her business and the scale it could get to.

It should be pretty easy to tell whether or not something has the potential to be big within a short mental exercise.  This is what is known as the "back of the napkin" approach.  I know... it's a highly technical term so stay with me on this.

It shouldn't take a complex financial model to tell whether or not you could have a big business.  Granted, a lot of future predictions depend on user behavior, but if I told you that I was creating a site for hipsters to swap skinny jeans, we should very quickly be able to guess the number of hipsters (some % of the Brooklyn population to start with), make an assumptions for the churn on their jeans, and what kind of fees we could charge them.

I'm surprised about how rarely entrepreneurs seem to do this calculation in their heads and test it for any kind of reasonability.  Too often, I get assumptions on taking 1% of what they consider to be their Total Addressable Market (TAM), and they get the TAM wrong anyway.  When you're trying to build the next online grocer, all the food sold in the US is not your addressable market, because a lot of it isn't sold direct to customers through supermarkets.  No matter how great your Fresh Direct killer is, we're not going to all stop eating out and start bringing our lunches to work. 

These kinds of quick reasonability checks is what venture investors do best.  We can quickly take just about any model we see and break it down to its dependencies and make quick calcs on the size of the opportunity.  Why?  It's not because we're smart.  It's just because we've done this thousands of times before.

Unfortunately, entrepreneurs don't always have an investor around to use their litmus test abilities.  They don't want to "waste" a shot they get with an investor, because they could be a pivot away from something much bigger, but they're around to get pigeonholed into having the investor always think of them as small.

So... what if you could tap an investor to just test reasonability without any fear of this counting as any kind of official pitch?  No powerpoints.  Just you talking about your idea/prototype/alpha and getting a quick read. 

Well, that's what I'm going to be doing this Tuesday night at NYIT.  It's called #notapitch and you're welcome to get some quick feedback on your ideas:  http://notapitch.eventbrite.com/   The only catch is that you'll have to share in public, but isn't that worth the tradeoff for knowing what I might say after you spend your $200k friends and family money and try to pitch me later.

Want to get in front of a VC? Be a little creative--human even.

10 Questions for Brooklyn's Innovation Community